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FEMSA (FMX) Q1 Earnings Miss Estimates, Sales Improve Y/Y

Zacks Equity Research

Fomento Economico Mexicano S.A.B. de C.V’s FMX, alias FEMSA, reported net majority income per ADS of 32 cents (Ps. 62 cents per FEMSA unit) in first-quarter 2019, missing the Zacks Consensus Estimate of 62 cents.

Net consolidated income of the largest franchise bottler for The Coca-Cola Co. KO was Ps. 3,849 million (US$200.3 million), up significantly from Ps. 1,233 million (US$65.7 million) in the year-ago quarter. The wide disparity in the comparable quarters was mainly the result of a non-cash foreign exchange loss related to FEMSA’s U.S. dollar-denominated cash position in first-quarter 2018 due to the appreciation of the Mexican peso. Additionally, results benefited from lower interest expenses and an increase in other financial products during first-quarter 2019.

Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise

 

Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise | Fomento Economico Mexicano S.A.B. de C.V. Quote

Total revenues increased 5.6% year over year to Ps. 115,938 million (US$6,032.2 million), mainly fueled by robust growth across all operations. On an organic basis, total revenues witnessed a year-over-year increase of 3.7%.

Shares of FEMSA rose 1.6% yesterday, after reporting strong top-line growth in first-quarter 2019. Moreover, this Zacks Rank #5 (Strong Sell) stock has improved 12.3% year to date, outperforming the industry’s growth of 8.5%.

 


FEMSA’s gross profit grew 7.8% to Ps. 42,794 million (US$2,226.5 million). Gross margin expanded 70 basis points (bps) to 36.9%, owing to gross margin expansion of 270 bps at FEMSA Comercio’s Proximity Division, partly negated by declines at Coca-Cola FEMSA and FEMSA Comercio’s Health Division.

FEMSA’s operating income rose 7.7% to Ps. 8,978 million (US$467.1 million). On an organic basis, operating income dipped 1.9%. Consolidated operating margin contracted 40 bps to 7.7% due to margin declines at Coca-Cola FEMSA and FEMSA Comercio’s Health Division.

Segmental Discussion

FEMSA Comercio — Proximity Division: Total revenues for this segment grew 9.3% year over year to Ps. 41,250 million (US$2,146.2 million). Organic revenues for the segment improved 8.7%. This rise can primarily be attributed to the opening of 234 net new OXXO stores in the reported quarter, which has taken the net new store count to 1,416 in the past 12 months.

FEMSA Comercio’s Proximity division had 18,233 OXXO stores as of Mar 31, 2019. Same-store sales at OXXO increased 3.2%, driven by 2.3% rise in average customer ticket and a 0.9% increase in in-store traffic.

Operating income rose 12.5% year over year while operating margin expanded 20 bps to 6.4%. Revenue gains were partly offset by higher operating expenses, stemming from the gradual shift of store teams to employee-based, higher secure cash handling costs, higher electricity tariffs, consolidation of Caffenio and organic growth at OXXO’s international operations.

FEMSA Comercio — Health Division: This segment reported total revenues of Ps. 12,758 million (US$663.8 million), up 2.4% year over year. This increase was backed by growth in Colombia and gradual improvement in Mexico. However, results were partly negated by soft quarter in Chile and currency headwinds in South America. The segment had 2,384 points of sales across all regions, of which, about 23 net new stores were added in the first quarter. Same-store sales for the drug stores rose 1.3%.

Operating income declined 4% year over year, with operating margin contracting 10 bps to 2.5%, driven by lower gross margin, offset by operating expense leverage due to cost efficiencies and stringent expense management across regions.

FEMSA Comercio — Fuel Division: Total revenues were up 2.5% to Ps. 10,853 (US$564.7 million). Same-station sales declined 7.5% year over year, driven by a 17.3% drop in average volume due to disruption related to fuel distributions that impacted some regions. The company had 540 OXXO GAS service stations as of Mar 31, including one new OXXO GAS station added in the first quarter. Operating income rose 17.5%, with 30 bps expansion in operating margin.

Total revenues at Coca-Cola FEMSA S.A.B. de C.V. KOF increased 4.8% year over year to Ps. 46,248 million (US$2,406.2 million). On a comparable basis, revenues improved 10%. Notably, the segment delivered top and bottom-line growth in Mexico and Central America, with particularly strong volume growth in Brazil, which aided performance.

Coca-Cola FEMSA’s operating income dipped 0.9% while comparable operating income improved 9.2%. The segment’s reported operating margin contracted 70 bps to 12.4%, owing to higher labor and freight expenses along with restructuring indemnities. This was partly offset by operating expense leverage.

Financial Position

FEMSA had a cash balance of Ps. 74,854 million (US$3,862.4 million) as of Mar 31, 2019. Long-term debt was Ps. 96,038 million (US$4,955.5 million). Moreover, the company incurred capital expenditure of Ps. 4,077 million (US$212.1 million) in the first quarter, reflecting increased investments at FEMSA Comercio’s Proximity and Fuel Divisions.

On Mar 22, 2019, the company’s shareholders approved a cash dividend of Ps. 9,692 million, consisting of Ps. 0.6042 per Series "D" share and Ps. 0.4833 per Series "B" share, amounting to Ps. 2.9000 per "BD" Unit or Ps. 29.0000 per ADS and Ps. 2.4167 per "B" Unit. The dividend will be paid in two equal payments, which is payable on May 7, 2019, and Nov 5, 2019.

Further, the company authorized a maximum of Ps. 7,000 million for the 2019 share-repurchase program.

Want A Better-Ranked Beverage Stock? Check This

PepsiCo Inc. PEP has an expected long-term earnings growth rate of 7.2% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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